Robert Kleine: Blame auto industry's struggles, not taxes, for loss of Michigan jobs

May 3, 2013

Robert Kleine

Written by

Robert Kleine

Detroit Free Press guest writer

There is no evidence that replacing the Michigan Business Tax with the corporate income tax ó thereby reducing business taxes by $1.7 billion ó has created new jobs in Michigan.

There are several reasons for this. First, to replace most of the lost revenue, income taxes on individuals were increased by $1.3 billion, reducing disposable income and the demand for goods and services which drives employment. Michigan personal income increased 5.6% in 2011 and only 3.5% in 2012, strong evidence that the income tax increases had a negative effect on demand. Second, most business sectors are not sensitive to tax changes. Retail and service businesses locate where the people are, and if these firms move out of state, they will be replaced by other similar businesses. The sector most affected by taxes is manufacturing, as it can serve its customers from anywhere. However, only 18% of the tax relief went to manufacturing firms. Third, state business taxes are such a small part of a businessí costs that even large changes have a minor impact; the Michigan Business Tax was less than 1% of private state gross domestic product.

Supporters of the tax changes point out that employment has increased since Gov. Rick Snyder took office, although the business tax changes did not go into effect until Jan. 1, 2012. A historical look at Michigan employment is needed to understand causes and effects. Michigan wage and salary employment peaked at 4.6 million in June 2000, and motor vehicle employment peaked at 352,000 that same month. By the end of Gov. John Englerís last term in December 2002, wage and salary employment had fallen by 221,000, and motor vehicle employment had dropped by 60,000. Wage and salary employment reached bottom in March 2010, at 3.8 million, and motor vehicle employment at 127,000. From the peak, Michigan lost 860,000 wage and salary jobs and 225,000 auto jobs.

Michiganís job losses had nothing to do with who was governor or with the Michigan Single Business Tax or Michigan Business Tax and everything to do with the loss of auto jobs. Michiganís auto manufacturers sell cars worldwide and nothing Michigan does has any measurable impact on their sales. According to a 2011 study from the University of Michigan Institute for Research on Labor and Employment, each auto job accounts for eight other jobs. Other studies have found a somewhat lower multiplier but none have estimated a number of less than four. Using a low estimate of four, the loss of 225,000 auto jobs would translate into a total employment loss of about 900,000, about the total number of jobs lost in Michigan.

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In defense of Gov. Jennifer Granholm, about two-thirds of the jobs lost during her term were lost during the deep national recession in 2008 and 2009. From March 2010 until the end of her term, Michigan added 64,000 wage and salary jobs, and in 2011, Snyderís first year, Michigan added another 97,000 jobs. None of his tax policies had gone into effect, so he cannot be given credit for these jobs.

In 2012, the first year the new tax policies were in effect, Michigan added only 37,000 wage and salary jobs although motor vehicle sales were up about 14%. However, growth improved in the first quarter of 2013, as 28,500 jobs were added. Since January 2012, when the tax changes took effect, and March 2012, Michigan wage and salary employment increased 1.2% compared with 1.8% nationwide.

Admittedly, it is still early to measure the economic effects of the tax changes, but policies that starve the real drivers of economic growth ó education, quality infrastructure, local services and quality of life ó almost certainly will see a negative effect.

I find it hard to justify raising taxes on low- and middle-income taxpayers while increasing the incomes of well-off business owners, especially during a time when income inequality is the highest it has been since the 1920s. The governor is struggling to find money to fund badly needed repairs for roads and bridges. I am fairly certain that if the money given to businesses was used to fund our infrastructure needs, we would see a significant increase in jobs.

Correction: An editing error in an earlier version of this column incorrectly identified the Single Business Tax.